The Family Affair: David Davis of Check ‘n Go

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Before his brother took over, David Davis ran Check n’ Go, one of the largest payday lending companies in the country. He has been involved in a nasty legal fight with his own father over control of the company. His father claims that Davis and his brother were running the company into debt in order to pay themselves dividends. Davis and his brother have claimed that their father misused company resources while he worked there and accused their father of agreeing to be a “star witness” against the company in a case brought by the IRS.

Davis has also been involved in and defended the worst practices of the payday lending industry. Former managers of Davis’ company claimed that it targeted African American communities with high-interest rate payday loans. Davis has been a vigorous defender of the industry. In 2007, a judge ruled that a woman’s class action lawsuit against Davis and his company could move forward. She claimed that the company charged her a 615% interest rate while she was on maternity leave.

Meanwhile, Davis “scoffs at accusations that payday lenders are loan sharks” and sits on the board of the Washington lobbying arm for the industry. He has fought against interest and fee rate caps and claimed they would hurt consumers. He even called those who supported regulating the industry “extremists.”

In 2007, a whistleblower claimed that the company and Davis had attempted to get one of their executives elected to the Ohio State House in order to kill payday lending regulations. The former employee claimed that Davis instructed employees to donate to the campaign.

Davis and his company faced millions in tax liabilities from the IRS, which claimed that the company owed $21 million in back taxes and up to $46 million in new federal income tax liabilities. The IRS also filed a claim against Davis personally, claiming that he took advantage of a tax trick that allowed him to increase his income by 140 percent in 2004 to $23.5 million. The IRS claimed that Davis owed $4.8 million in taxes.

While Davis was earning millions using tax tricks that could be illegal, he was showering powerful politicians with at least $259,302 in campaign contributions.

The Details:

Davis Is in a Nasty Legal Fight With His Father, Who Claimed That Davis Is Running the Company Into Debt to Pay Himself Big Dividends

Davis’ Father Claimed That Davis And His Brother Ran The Company Into Debt, Court Ruling Halted Dividend Payments By The Company. “A Hamilton County judge Monday barred the parent company of payday lender Check ‘n Go from declaring or issuing new dividends, incurring additional debt or holding a shareholders meeting. The result is a tight leash on the operators of Mason-based CNG Financial Corp., which runs more than 1,400 stores in 34 states. The company is operated by David and Jared Davis, the sons of founder and part-owner Allen Davis. Allen Davis, who owns a 28 percent stake, sued the company in 2005 when the company booked a divorce-related $37 million stock transfer as taxable compensation. The case pits Davis, the former president of Provident Bank, which was acquired by National City Bank in 2004, against his sons, who own a combined 62 percent of CNG’s stock. The sons also run the company, the nation’s second-biggest chain of payday loan stores. The elder Davis, who lives in Sarasota, Fla., has used the suit to attack his sons’ management of the company, claiming that they’ve run up debt to pay out dividends. (CNG is a private, subchapter S corporation whose profits are paid as dividends to its shareholders, who then assume the income tax burden.)” [Cincinnati Enquirer, 10/16/07]

Davis’ Father Claimed He Took Out Loans In Order To Pay Millions in Dividends To Its Principal Shareholders Including Davis, Who Owned 32 Percent Of The Company’s Stock. “In a creaky old courtroom on the fifth floor of the Hamilton County Courthouse, members of one of the region’s richest families are locked in an acrimonious, lawyer-swarming business dispute that has no end in sight. When a preliminary injunction hearing resumes Thursday before Common Pleas Judge Norbert Nadel, it will have covered more than 20 sessions over nearly 14 months. And with the civil proceeding in its second year, one question looms large: What are these people fighting about? The case pits Allen Davis, a former Indian Hill millionaire and banker now living in Sarasota, Fla., against a company controlled by his two sons, David and Jared Davis, both of whom are building mansions in Indian Hill. The privately held company, CNG Financial of Mason, is best known by its trade name, Check ‘n Go. With $280 million in revenue in 2005, Check ‘n Go is the nation’s second-biggest player in the so-called payday loan industry. Family relations began to shear when Allen Davis and his wife, Judith, separated in 1999 and divorced three years later, ending a 39-year marriage. But when his repurchase of her stock in CNG was routed through the company, reissued as a stock option and booked as compensation – sticking him with a $13 million federal income tax bill – Allen Davis hired Stan Chesley and filed suit against his sons. Davis’ case boils down to this: CNG’s borrowing from banks, in part to pay millions of dollars in dividends to its three principal shareholders – David and Jared, who each own about 32 percent of CNG’s stock, and Allen, who owns about 28 percent – will ruin the company, he says. Allen Davis wants Nadel to enjoin CNG from making further dividend payments.” [Cincinnati Enquirer, 7/25/06]

Davis and His Brother Claimed That Their Father Misused Company Resources

Davis And His Brother Accused Their Father Who Founded Their Payday Lending Business Of “Corporate Interference” and “Misappropriating Company Cars, Sabotaging A 2009 Merger Attempt And Offering To Act As A ‘Star Witness’ In An IRS Case Against The Lending Company.” “A Florida court fight is heating up involving the family that owns Sycamore Township-based Check ‘n Go. New accusations of corporate interference were filed in May by Jared and David Davis, officers of Check ‘n Go’s parent company, CNG Financial Corp. The sons of Allen Davis accused their father of misappropriating company cars, sabotaging a 2009 merger attempt and offering to act as a ‘star witness’ in an IRS case against the lending company. ‘Davis has been attempting to undermine CNG’s management and harm CNG’s business relations,’ said a May 19 complaint filed in Circuit Court in Sarasota County, Fla., where Davis now lives. ‘The purpose of this has largely been twofold: to force CNG to buy out his shares, or to permit him to replace management with himself and/or a team beholden to him.’ It’s the latest in a series of legal skirmishes that began when Allen Davis challenged the company’s handling of a stock transfer in 2004, 10 years after Jared Davis started the firm. Allen Davis wanted stock transaction structured as a nontaxable division of assets pursuant to his 2002 divorce. CNG declared it a dividend, leaving Davis with $37 million in taxable income in 2004. Allen Davis responded with a counterclaim that denies his sons’ allegations and asserts that CNG owes him more than $20 million in overdue compensation and damage. He called the May 19 filing ‘an intentional vindictive effort by CNG, Jared and David to injure the reputation of Allen because of their displeasure’ with Ohio court rulings, according the counterclaim, filed June 17. The elder Davis ran Cincinnati’s former Provident Bank for 14 years, retiring in 1998. CNG is the Tri-State’s 36th-largest privately held company with an estimated $253 million in 2010 revenue and 2,200 employees, according to Business Courier research. It offers short-term loans at 1,060 retail locations in the U.S. and United Kingdom. And it offers prepaid debit cards and debt-collection services under the name Axcess Financial.” [Cincinnati Business Courier, 7/1/11]

Davis and His Firm Have Been Accused of Targeting the African American Community

Former Managers Of Davis’ Payday Lending Company Claimed The Company Targeted African Americans. “Former managers for Ohio-based payday lender Check ‘n Go were ordered to solicit poor, black residents, rewarded for pushing people into revolving loans and pressured to donate to a company executive running for the Ohio House, they said yesterday. ‘We train our sales staff to keep customers dependent, to make sure they keep re-borrowing … forever, if possible,’ said Mike Donovan, a former district director of operations for Check ‘n Go who said he oversaw stores in Washington, D.C., northern Virginia and Delaware. Donovan and two former Washington-area store managers for Check ‘n Go, the nation’s second-largest payday lending company, spoke out yesterday at a news conference in Washington as part of an effort to get the District of Columbia Council to cap payday-lending interest rates. Advocates for consumers and the poor in Ohio also are aggressively pushing for payday-lending-rate caps and other regulations. ‘I’m here to tell you that Check ‘n Go deliberately targets black communities,’ said William Harrod, a former store manager in D.C. When marketing his loans, he said, ‘I was instructed to stick to low-income, black apartment buildings.’” [Columbus Dispatch, 9/13/07]

Davis “Scoffs At Accusations That Payday Lenders Are Loan Sharks.” “David Davis, president of CNG Financial, the Mason company that owns 1,150 Check ‘n Go stores, scoffs at accusations that payday lenders are loan sharks. Payday loans, he said, are not secured by any repossessable collateral, and lenders can’t pursue deadbeats in criminal courts. A bad check simply goes into collection. ‘People who come into our stores are hard-working people who need small amounts of money between paydays,’ Davis said. ‘I don’t know how you build an industry serving millions of people by taking advantage of them.’ Payday lenders operate in a niche that had been the preserve of banks. By charging steep penalties for overdrawing accounts, banks – wittingly or not – send many people to the nearest payday loan store. ‘If banks lowered their overdrawn-check fees to two or three bucks,’ Davis said, ‘there’s a pretty good chance I’d be out of business.’” [Cincinnati Enquirer, 6/5/05]

Davis Defended Partnering Payday Lending Business With Commercial Banks. “But the payday loan group’s past president, David Davis, defended the alliances. ‘Operators have partnered with banks the same way credit card companies have … to export rates from one state into another state,’ said Mr. Davis, who is also president of Check ‘n Go Inc. in Mason, Ohio. ‘The payday loan company is in essence using the bank’s capital to make the loans.’ Check ‘n Go has 650 sites in 23 states; its revenues grew more than 40% last year. Mr. Davis, a former banker, said payday lenders are filling a gap in the financial services market.” [American Banker, 1/24/00]

Davis Sits on the Board Of The Community Financial Services Association Of America. [CFSA Website]

Davis Has Long Fought Against Interest and Fee Rate Caps – Claimed They Would Hurt Consumers

Davis Joined Other Payday Lenders At The Ohio Capital To Rally Opposition To A Bill That Imposed A 28 Percent Annual Percentage Rate Cap On Fees. “More than two thousand payday lending customers and industry employees took to the steps of the Capitol today to protest a ban on payday lending being considered this week in the Ohio Senate. Holding signs reading, ‘28% APR=6,000 Lost Jobs’ and ‘My life. My credit. My choice!’ an estimated 2000 payday lending supporters voiced their concern for legislation that would close down the industry in the state, leaving more than 6,000 Ohio residents out of work and leaving hundreds of thousands of Ohioans to choose between less desirable, more costly credit alternatives. The bill, H.B. 545, imposes a 28% annual interest rate cap on fees, allowing a fee of 8 cents a day, not enough for the lender to pay employee salaries and benefits, rent or other overhead costs. Speaking at the rally, D. Lynn DeVault, president of the Community Financial Services Association of America, said, ‘Make no mistake about it: if this bill passes, more than 6,000 people will lose their jobs and a short-term credit option will be yanked away from the hard-working people of Ohio. Ohio’s working families deserve better.’… Frauenberg said that in the past month, more than 50,000 letters, emails and phone calls have been sent to state legislators and the governor from industry employees and customers, urging policymakers to stand up and protect their jobs and their credit choices. He said the industry has been working closely with interested legislators to support legislation that would offer consumer protections while allowing the industry to continue offering access to short-term, small-dollar credit. Also speaking at the rally were: Gloria Hayter, Co-Owner Cash Pal; Karen Finley, Advance America employee; and David Davis, Check ‘n Go President and CEO.” [Community Financial Services Association of America Press Release, 5/6/08]

Davis Claimed That “Consumers Lose When Rates Are Capped.” “Davis of Check ‘n Go, which is owned by Ohio-based CNG Financial Corp., said consumers lose when rates are capped. ‘We want as many consumer protections in place as possible when dealing with people and their money,’ Davis said. ‘We need reasonable protections regarding disclosure, licensing and capitalization. The other side of that is we’ve found in states where it is unregulated as relates to price, there is more competition, better service, better convenience and the customers seem to respond better.’” [Deseret News, 12/27/98]

Davis Even Called Those Who Wanted to Regulate the Payday Industry “Extremists”

Davis Wrote Op-Ed Calling Those Who Wanted To Regulate Payday Lending Industry “Extremists.” “Propaganda put out by so-called ‘consumer activists’ against cash advance companies continually misleads everyone from elected officials to reporters to the general public. Even worse, these extremists may be hurting the very Virginians they claim they’re trying to help by advocating to eliminate an available credit option for those consumers they purport to represent. Cash advances are a necessary product responsibly delivered to reasonable people. Cash advance opponents, such as Virginians Against Payday Loans in Newport News, claim the industry targets poor people, charges exorbitant fees and is growing at an alarming rate. They also call for several regulatory measures, including a 36 percent or 72 percent annual percentage rate cap on cash advances. The cash advance industry exists, like all industries, because of enormous consumer demand. Nearly all banks and credit unions will not provide short-term, single-payment loans. Cash advance stores provide hard-working people with a reasonable, well-regulated option for meeting unexpected expenses and short-term financial needs.” [Davis, The Roanoke Times, 8/3/07]

Whistleblower Claimed Davis Attempted to Put an Executive in the Ohio State House to Kill Payday Regulations and Asked Employees to Donate to the Campaign

Whistleblower Claimed Davis’ Company Attempted To “Put One Of Their Executives Into An Ohio Statehouse Seat” In Order To Defeat Regulations Of The Payday Lending Industry. “State lawmakers soon will consider clamping down on predatory payday-lending companies, but lenders are fighting back by trying to put one of their executives into an Ohio Statehouse seat, a former company employee charged Wednesday. That could help the Cincinnati area-based company, Check ‘n Go, block proposed rules against lenders who turn small paycheck advances into four-figure loans with 400 percent annual interest, said Michael Donovan. Until Tuesday, he was a district director of operations for Check ‘n Go, the country’s second-largest payday lender. By Wednesday, Donovan had become a whistleblower, saying he quit his job ‘because I could no longer stomach the lies.’ Those lies, he said, included telling people that his company performed a service by helping low-wage workers get cash for emergencies and bills. He said the company’s business model actually depended on putting customers deeply in debt by turning their short-term loans into long-term, high-interest obligations. Check ‘n Go ‘made the process very simple and easy at the front end to get people into the loan,’ added Cameron Blakely, a former Check ‘n Go store manager. ‘But at the back end, we made it very difficult for customers to get out of the loan.’ Borrowers became ‘like indentured servants,’ he said… Rabenold, a former legislative aide in Columbus, also defended the company in a telephone interview. Asked if he is running for a legislative seat from suburban Cincinnati in order to be Check ‘n’ Go’s guy in the Statehouse, he said: ‘No. I’m running to be southwest Ohio’s guy.’ He cited education, traffic and safety issues as reasons to run. He also disputed Donovan’s statement that Check ‘n Go district directors and executives were under unstated pressure to donate to his campaign. Records from the Ohio secretary of state show that 23 employees of Check ‘n Go and affiliated companies have donated to Rabenold’s campaign. Some gave as little as $50, while CEO David Davis and Executive Vice President Jared Davis each donated $10,000.” [Plain Dealer, 9/13/07]

Whistleblower Claimed Executives At Davis’ Company Including Davis Asked Employees To Contribute To Candidate That Would Defend Industry In The State House. “A former district director of operations for Check ‘n Go, a Mason, Ohio-based payday loan company, accused the company of trying to get a high-level staff member into the Ohio statehouse in an attempt to curb legislation that would restrict payday lending in the state. Mike Donovan, the former district director of operations for Check ‘n Go representing all stores in Washington, D.C., as well as some in Northern Virginia and Delaware, said all Check ‘n Go staff from the district director level on up were asked by the company’s CEO to donate at least $200 to John Rabenold’s campaign for the Ohio General Assembly. Rabenold, the company’s vice president of government affairs, is seeking the 35th District Ohio House seat. Donovan, who said he quit his job on Tuesday, said he was told any donations to Rabenold’s campaign were ‘voluntary.’ ‘But our understanding was that a failure to do so would impact our careers in the company,’ he said. Rabenold said Check ‘n Go CEO David Davis has been an enthusiastic supporter of his campaign – Davis is among his contributors – but said all contributions have been strictly voluntary. He said most of the contributions from his Check ‘n Go colleagues are in the ‘$50 to $100 range.’” [Dayton Daily News, 9/13/07]

Election Experts Said Urging Employees To Contribute To Political Candidates Was “OK.” “As long as Ohio-based Check ‘n Go is not reimbursing employees for political contributions they make to a company executive, state elections-law experts say it’s unlikely any laws were broken when executives asked employees to make such donations. Michael Donovan, a Check ‘n Go district director of operations in the Washington, D.C., area, said this week that he felt pressured to give to the campaign of Ohio House candidate John Rabenold, who also is a company executive. Donovan said company CEO David Davis sent an e-mail to upper-level employees asking that they give at least $200. ‘We were told this was voluntary, but our understanding was that a failure to do so would impact our careers in the company,’ Donovan said. He quit the company on his own and did not donate. The company denied Donovan’s allegation, saying in a statement: ‘Check ‘n Go would never associate political donations to employee performance standards. Additionally, we have not asked employees to make specific donations to candidates.’ Ohio law says, ‘No person shall coerce, intimidate, or cause harm to another person … that other person makes or does not make a contribution.’” [Columbus Dispatch, 9/15/07]

Woman Filed Class Action Lawsuit Against Davis and His Company After She Was Charged a 615% Interest Rate While at Maternity Leave

Circuit Court in Florida Allowed Class Action Suit To Move Forward That Was Filed Against Davis And His Company By Women Who Took Out A Payday Loan While She Was On Maternity Leave. “The 15th Judicial Circuit for Palm Beach County ruled on Dec. 13 allowed a class action filed by Florida consumers to go ahead against payday lender Check ‘n Go, according to a blog entry posted by Cyrus Dugger at TortDeform, the civil Justice Defense blog. The suit was filed by Donna Reuter who was allegedly forced to “rollover” a loan she took while on maternity leave after she was unable to repay it in full after a two-week cycle. Under the “rollover” she had to pay an additional fee and finance charge with each rollover. The loan agreements she entered into stated she is not allowed to bring any claims whatsoever against Check ‘n Go on a class-wide basis in arbitration. The agreements showed that the cost of credit to her on an annual basis was 338.93% to 615.94%.” [Class Action Reporter, 11/19/07]

Davis and His Firm Faced Large Tax Penalties From the IRS, Which Claimed Davis Made Millions From an Illegal Tax Maneuver

Davis Served As CEO Of CNG Financial Corp, Which Faced A Claim By The IRS That It Owed $21 Million In Deficient Taxes. “CNG Financial Corp. is telling its employees that it expects to win a claim against the company, filed by the Internal Revenue Service in July. As the Business Courier reported in its Oct. 10 print edition, the IRS filed a $21 million notice of deficiency against the company, based on its handling of warrants and stock options issued to shareholders in 2000 and 2002. ‘Our company is confident that there is no deficiency on our part,’ CEO David Davis said in an employee memo distributed today. Davis was not available for comment following an Oct. 8 court hearing where the IRS claim was disclosed. Dissident shareholder Allen Davis cited the IRS claim as evidence in a Sept. 29 lawsuit in which he sought access to company financial records. He also claimed CNG’s profits had ‘catastrophically fallen’ in 2007 and his attorney criticized company spending on travel, entertainment, fines and penalties. CNG Financial is the parent of Check n Go, a payday lending company with nearly 1,400 stores in the U.S. and United Kingdom. Davis did not address CNG’s profitability in his note to employees, but said, ‘these legal proceedings and false allegations have no impact on you or the execution of the company’s strategic plans.’ Company spokesman Jeff Kursman said any decline in profitability is the result of long-term investments in new products and the UK expansion. ‘We’re investing for long-term shareholder value. That’s what smart companies do,’ Kursman said. Kursman also objected to the Courier’s description of Allen Davis as company founder. In 2007, the company told the Courier that Allen Davis financed CNG’s 1994 start up, in which Jared Davis opened the first Check n Go store in Covington. Allen Davis was CEO of Provident Bank at the time. Jared Davis, Allen’s son, is now CNG’s chairman.” [Cincinnati Business Courier, 10/10/08]

CNG Financial Faced Up To $46 Million in New Federal Income Tax Liabilities According To The Company’s Founder And Davis’ Father. “CNG Financial Corp. is facing up to $46 million in new federal income tax liabilities because of the way it handled stock transactions in 2000 and 2002, attorneys for company founder Allen Davis argued in an Oct. 8 court hearing. That claim is based on a July 25 notice from the Internal Revenue Service that CNG owes $21 million for the 2004 calendar year. It represents a renewal of hostilities in a 3-year-old legal fight between Allen Davis and his sons, CEO David Davis and Chairman Jared Davis, in which the payday-lending patriarch won a 2007 court order restricting the firm’s use of cash. In the most recent skirmish, filed Sept. 29, Allen Davis sought a court order for the right to inspect financial records. Hamilton County Common Pleas Judge Norbert Nadel indicated during the Oct. 8 hearing that he is likely to grant the request next week. ‘CNG’s profits have catastrophically fallen,’ Allen Davis said in a Sept. 29 affidavit supporting his request. ‘I need the documents … to investigate whether there are any improprieties in its management and operation and the reasons for the recent precipitous decline in earnings.’\ Allen Davis, who ran Cincinnati’s Provident Bank before he founded CNG’s startup in 1994, attended the hearing but declined comment.” [Cincinnati Business Courier, 10/13/08]

…and the IRS Filed Separate Action Against Davis

IRS Filed Separate Action Against Davis Claiming That He Illegally Counted Compensation Paid To His Father As A Deduction, Which Increased His Income By 140 Percent In 2004 To $23.5 Million, IRS Claimed It Was Due $4.8 Million From Davis. “Former Cincinnati banker Allen Davis, frustrated in his long-running legal battle with the Check ‘n Go payday loan company over a stock option that left him with a $13 million income tax bill, has a new courtroom foe: The IRS. The agency issued the former president of Provident Bank a ‘notice of deficiency’ that includes a corrected income-tax return. Instead of the $20 million that Davis originally reported as taxable income in 2004, the IRS put his earnings at $56.7 million. And instead of the $7 million in taxes that he paid, the IRS says his tax bill should have been $20.8 million, or about 37 percent of his income. Davis, who moved to Sarasota, Fla., in 2000 and sold his Indian Hill mansion – the most expensive home in Hamilton County – to his lawyer, Stan Chesley, is contesting the IRS ruling in U.S. Tax Court. Davis blames the tax dispute on a family rift that began with the 1999 separation with his wife of 39 years and carried over into stock ownership issues at Check ‘n Go parent CNG Financial Corp., a Mason company controlled by Davis’ sons Jared and David…The IRS ruling was no victory for Jared and David Davis. Although the IRS is demanding that their estranged father pay taxes on what it considers compensation, it filed separate actions against his sons, stating that Allen Davis’ services weren’t worth compensating. In separate notices of deficiency sent to Jared and David Davis, the IRS contends that the $37 million paid to Allen Davis was ‘not an ordinary and necessary expense and exceeds a reasonable allowance for salaries or other compensation for services performed by Mr. Davis.’ By disallowing the compensation as a CNG expense, the IRS raised the 2004 tax bills of the Davis brothers by $4.8 million apiece. As a subchapter S corporation, CNG pays its taxes through its shareholders, who receive dividends to cover the bill. The IRS ruling increased Jared Davis’ 2004 taxable income 140 percent to $23.5 million. It increased David Davis’ income 119 percent to $25.2 million.” [Cincinnati Enquirer, 3/24/07]

Davis Contributed at Least $259,302 to the Campaigns of Powerful Politicians and Special Interest PACs

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